Palo Alto Chamber officially opposes hotel-tax hike

Measure on the November ballot, if passed, would increase tax from 12 percent to 14 percent

The Palo Alto Chamber of Commerce Monday took an official stance against the city's proposed hotel-tax hike, a 2 percent increase that the City Council has unanimously agreed to send to the voters in November.

Though the ballot measure is billed as critical to funding a host of badly needed infrastructure improvements throughout the city, local merchants and hotel owners have spoken out against what they see as an unfair burden on their slice of the local economy.

"One can imagine the city initiating its consideration of any tax increase by asking whether it would be equitable  whether the particular tax proposed would be logical in relation to the intended uses of the money, whether the people to be taxed are somehow not paying their fair share, whether the tax might result in unwanted changes in people's behavior," a statement from the Chamber reads. "The city simply is not asking those questions."

Hal Mickelson, chair of the Chamber of Commerce's Business Advocacy and Public Policy Forum, said he understands the city's infrastructure needs, but a more equitable conversation about how to address them must be had.

"I think the argument is a strong one that if you're considering a tax policy for the city, somebody ought to mention fairness," he said Monday.

Councilmember Larry Klein, who chairs the council's Infrastructure Finance Committee, said the Chamber's announcement, though "hardly a surprise," was disappointing.

"While they ... acknowledged the city's infrastructure needs, they didn't send any alternatives," he said.

"We're moving forward," he said of the bid to increase the rate from 12 percent to 14 percent. "It doesn't change anything. We're certainly hopeful (and) optimistic that the voters will see it the way the council has ... and that we'll get the increase and we'll be able to move forward with infrastructure improvements."

The city plans to leverage the new funds to obtain roughly $30 million through "certificates of participation," a borrowing mechanism commonly used by municipalities. When coupled with other funding sources, such as the city's Infrastructure Reserve and the Stanford University Medical Center development agreement, the measure would raise the amount the city has to spend on infrastructure to about $125.8 million.

Projects in the pipeline include a new public-safety building, the rebuilding of two outdated fire stations, new garages in downtown and on California Avenue and improvements to the city's bicycling infrastructure.

Garden Court Hotel General Manager Barbara Gross, against whom Klein argued the merits of the hotel-tax bump during a recent debate sponsored by the Chamber of Commerce, said Monday that she's "delighted" the Chamber officially opposed the increase.

"We feel that there is an inordinate amount of pressure put on the hospitality community to contribute to the general fund," she said, arguing that the increase to 14 percent has been pushed forward "without any supporting information that the hotel industry contributes to the infrastructure problem anymore than any other industry."

She also said that an increase would put hotel guests at a disadvantage, upping the "total spend" for companies paying for employees' travel accommodations.

"If corporate travel departments re-direct visitors to other cities, Palo Alto stands to lose some of their restaurant and retail business as well as the money they spend on lodging," the Chamber's statement reads.

"If the hotel business has a dent in it, then everybody who's in business in Palo Alto is at risk," Mickelson said.

But the greatest impact, Gross said, will be on "more rate-sensitive hotels" along El Camino, who could lose business to equivalent hotels south in Mountain View or north in San Mateo.

"If the TOT (transient occupancy tax) rate in Palo Alto will be 14 percent or 15 percent and the corresponding rate in Santa Clara, Sunnyvale and Mountain View is 10 percent, there's every reason to worry that corporate travel departments will notice the difference and book rooms in those other places," the Chamber's statement reads.

"By the time this measure goes before the voters, there may be studies on this issue; all we can say right now is that the assumption there will be no effect on business activity is merely wishful thinking."

Mickelson echoed the statement's conclusion, which advocates for finding a more even-handed way to support the city's infrastructure projects.

"If it is necessary to have new taxes or additional taxes, why don't we sit down and figure out something that applies more broadly and applies more equitably and doesn't single out a particular business?" Mickelson asked.

The next meeting of the Chamber of Commerce's Business Advocacy and Public Policy Forum will be Wednesday, July 9, at noon at Boston Private Bank & Trust, 420 Cowper St., Palo Alto.

Posted by citizen
a resident of Another Palo Alto neighborhood
on Jun 23, 2014 at 4:35 pm

"somebody ought to mention fairness"

Well, in Measure D, a neighborhood asked whether it was fair for residents of a small neighborhood to be asked to essentially bear the burden of the costs through densification, traffic, and loss of safety and neighborhood character, and the Chamber sided against them. Interesting that the Chamber would forget this now that the shoe is on the other foot.

Don't worry, Chamber, the neighbors dislike this Council far more and will have a hard time trusting anything they put forward no matter the noble goals.

The article contains a glaring error. The story says that $30 million will be obtain though COPS (Certificates of Participation):

> The city plans to leverage the new funds to obtain roughly $30 million
> through "certificates of participation," a borrowing mechanism commonly
> used by municipalities. When coupled with other funding sources, such as
> the city's Infrastructure Reserve and the Stanford University Medical
> Center development agreement, the measure would raise the amount the city
> has to spend on infrastructure to about $125.8 million.

This is not correct. The June 2 staff report to Council (see: Web Link) on page 3 says:

> $64.5 million will be financed using COP’s. The revenue streams necessary
> to support this annual debt service will be derived from new hotels tax
> receipts and the two percentage point TOT increase.

So, more than half of the City's proposed infrastructure projects will be financed by COP's, over what' likely to be 30 years. The extremely volatile transient occupancy tax (TOT) will be used to pay this debt. If the TOT isn't sufficient to cover the debt obligation, the City's general fund will be required to make up the difference.

COPs are a horrible way for Palo Alto to finance this large amount of debt. Leveraging the transient occupancy tax to support the COPs is stupid because the revenue generated can vary greatly with the condition of the economy and the area hotel market. Both are beyond the City's control.

Posted by Joe
a resident of Another Palo Alto neighborhood
on Jun 24, 2014 at 8:51 am

> COPs are a horrible way for Palo Alto to finance this large
> amount of debt. Leveraging the transient occupancy tax to
> support the COPs is stupid because the revenue generated can
> vary greatly with the condition of the economy and the area
> hotel market. Both are beyond the City's control.

While the premise might be true—that the revenue from the TOT can not be reliably predicted—the conclusion—that the difference between a yearly COP payment and the TOT must be made up out of the General Fund—is not necessarily true.

The City has reserves, which can be tapped for making up small, yearly, deficiencies; the TOT can be increased; new hotels will increase the TOT revenue beyond what the City has projected; and, finanally, the good citizens of Palo Alto can elect to pass a parcel tax to help pay off the COPs.

COPs are, at the least, an end-around the California Constitutional requirement that taxes be approved by a vote of the people.

In addition to not being fair, the tax is not guaranteed to go toward the projects listed. The ToT goes in to the general fund.

Klein is being disingenuous at best by saying that other options were not offered. There was a discussion regarding bonds and an overall sales tax increase. His response was that no tax is fair so it doesn’t matter if one is more fair or not, and that better alternatives do exist, but that the council decided they were too difficult to pass and therefore would go after the low hanging fruit. I’m sure you can check the minutes from the Chamber meeting to verify.

Posted by SteveU
a resident of Barron Park
on Jun 24, 2014 at 12:37 pmSteveU is a registered user.

As others have stated. A higher Tax than surrounding areas will drive away these customers.
A side effect is this will now CREATE MORE TRAFFIC back into PA for people attending Business or visiting friends and relatives.